Where the money grows on trees

Making sense of Uruguay’s forest boom.

In recent years, Latin American forests have faced significant challenges due to intensive agricultural expansion, climate change denialist policies and extreme weather events, causing global concerns about deforestation. Amid this alarming situation, Uruguay stands out as an exception with a rare 1987 political consensus that led to the enactment of a national forestry law, effectively halting deforestation in the country. This legislation protected the 1 million hectares of natural forests, covering 6% of Uruguay’s land area. “Since then, the area devoted to forestry activities has experienced a 10-fold growth,” commented a fund manager at Agroempresa Forestal, “the most important species is eucalyptus (80% of the area) and 20% to pine. The country has many important advantages since the trees grow at a much faster pace than in European woods.” 

The national forestry law has proven to be a success, with man-made forestry plantations covering 50,000 hectares. Uruguay has emerged as a leading producer of raw materials for the wood and pulp industry, contributing between 2.9% and 3.5% to the country’s GDP in recent years. A consultant at consulting company EX ANTE, declared that “the production of the pulp industry had a very important impact representing around 20% of the total exports of the country (81% cellulose), around USD 2 billion and cellulose could become the top export product, outperforming beef, the traditional champion of Uruguayan exports.” This significant sector growth has over 800 companies involved with industrial pulp production. 

The positive impact of the forestry sector is evident in Uruguay’s thriving exports. The Ministry of Agriculture projects exports to exceed USD 3.2 billion in 2023, making a significant contribution to the country’s agricultural GDP. Whilst “the forestry sector occupies just 10% of the land that needs beef and wool production, it generates the same number of jobs and contributes to [Uruguay’s] GDP,” remarked the consultant. Notably, China is the largest market for Uruguayan pulp products, accounting for 26% of exports, followed by Italy (21.7%) and Germany (12.5%). 

“[Whilst] the forestry sector occupies just 10% of the land that needs beef and wool production, it generates the same number of jobs and contributes to [Uruguay’s] GDP.”

A consultant at consulting company EX ANTE

Forestry companies in Uruguay have further benefited from free trade zones where pulp mills operate. This has attracted foreign investments, as evident from the 2nd Uruguay-EU investment forum in October 2019. The then Minister of Agriculture, Enzo Benech, actively promoted the wood-forestry sector as a booming industry in need of investment in wood, pulp and cellulose production. The fund manager at Agroempresa Forestal, noted that “there were three cellulose plants operating in Uruguay since 2004, then the Finnish company UPM started operating in Uruguay followed by Montes del Plata and UPM is launching the operation of its second plant, UPM2.”

UPM signed an agreement for a USD 3 billion investment in a new cellulose plant, the Paso de los Toros Plant. This venture, which began production in April, is expected to boost Uruguay’s GDP by 2% and create 4,000 new jobs while indirectly generating an additional 6,000 jobs. However, the executive also voiced her concerns “that even if UPM diligently followed the regulations with complete compliance, we still need 10 years to assess the impact in water use, one of the most vulnerable points in the value chain of cellulose production.” 

Nevertheless, Uruguay’s success in attracting international investments in the forestry sector is largely due to its robust regulations and aligning with global Environmental, Social, and Governance (“ESG”) standards. The Food and Agriculture Organisation of the UN has recognised Uruguay for its sustainable harvesting practices, preservation of genetic diversity and maintenance of ecological processes and biological systems. “The estimated added value to Uruguayan GDP by the forestry sector is 3%, around USD 1.7 billion,” explained our source at EX ANTE, with “73% related to cellulose including the extraction of wood, transport and industry transformation.” 

“The estimated added value to Uruguayan GDP by the forestry sector is 3%, around USD 1.7 billion… [with] 73% related to cellulose including the extraction of wood, transport and industry transformation.” 

A consultant at consulting company EX ANTE

While Latin American forests face serious threats from agricultural expansion and climate change denial, Uruguay does stand out as a positive example of conservation and sustainable development. Through a rare political consensus and the implementation of a national forestry law, the country has managed to halt deforestation and protect its natural forests. The flourishing forestry sector, particularly the eucalyptus-based pulp industry, has become a significant contributor to Uruguay’s GDP and a major player in international markets. With a welcoming environment for foreign investments, supported by regulations that prioritise sustainability, Uruguay continues to be an attractive destination for forestry-related ventures. It is smelling sweet like roses, sorry, eucalyptus for Uruguay’s future. 

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